Levers of Control: A book report by Bob Morris

April 13, 2011

Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic Renewal
Robert Simons
Harvard Business School Press (1994)

I read this book when it was first published in 1994 and recently re-read it, curious to see how well it has held up. My conclusion? Very well indeed. What I find especially noteworthy is the fact that, only decade ago, there was nowhere near the understanding and appreciation of innovation that we have today. As I compose this brief commentary, Amazon offers 40,135 books on the general subject and 8,707 on innovation management. That is amazing.

In any event, Robert Simons wrote this book in order to explain “how managers use innovative control systems to drive strategic renewal.” There is a paradox involving innovation that has always fascinated me: That innovation initiatives are most productive and lucrative when launched and then sustained within a stable (albeit flexible) environment. In other words, innovative thinking needs order, structure, discipline, etc. to which it can respond. There had to be a GE for Jack Welch to “blow up” when Reginald Jones selected him to become its CEO. The same was true of IBM when Lou Gerstner became its CEO. Moreover, another paradox, organizational renewal – if not transformation – requires control systems (key phrase) that are themselves innovative. In this volume, Simons focuses primarily on “the informational aspects of management control systems – the levers managers use to transmit and process inf0ormation within organizations. For the discussion to follow, I adopt the following definition of management control systems: management control systems are the formal, information-based routines and procedures managers use to maintain or alter patterns for organizational activities.” More than a decade ago, Simons saw the need for a new theory of control that recognizes the need to balance competing demands. Such demands today are much more intense and in much greater numbers.

Simons suggests that an organization’s strategy for control must (somehow) accommodate these “variables”: belief systems which are used to inspire and direct the search for new opportunities; boundary systems which set limits of opportunity-seeking behavior; diagnostic systems which motivate, monitor, and reward achievement of specific goals; and interactive control, systems which stimulate organizational learning and the emergence of new ideas and strategies. I agree with Simons that any theory of management control must be evaluated according to criteria such as the extent to which the potentially important variables are included in the theory, the clarity of the linkage between control system variables and the achievement of organizational strategies, and the reliability and validity of the evidence. The “new theory of control” which Simons offers in this book fully accommodates such criteria.

I especially appreciate the provision of all manner of “figures” and “exhibits” which organize and illustrate clusters of key points and concept relationships that are analyzed in each chapter. These reader-friendly devices will later facilitate, indeed expedite review of Simons’ key points. If reviewing nothing else in the book, busy executives should frequently check out the detailed “Checklist Summary” in Appendix A which identifies the WHAT, WHY, HOW, WHEN, and WHO of each of the four control levers and of the internal control systems which are fundamental to ensuring the integrity of data used in all control systems.

For me, some of the most valuable material is provided in Chapter 7, “The Dynamics of Controlling Strategy.” Simons points out that strategic control “is not achieved through new and unique systems but through belief systems, boundary systems, diagnostic control systems, and interactive control systems working in concert to control both the implementation of intended strategies and the formation of emergent strategies. These systems provide the motivation, measurement, learning, and control that allow efficient goal achievement, creative adaptation, and profitable growth.” Figure 7.3 on page 159 cleverly illustrates the dynamic relationships between and among an organization’s core values, risks to be avoided, strategic uncertainties, and critical performance variables. “Managing the tension between creative innovation and predictable goal achievement is the key to profitable growth.” Hence the importance of the four control levers that can enable managers to “direct collaborative enterprises toward their worthwhile goals.”

Although published in 1994, this book offers even greater value today than it did then. Congratulations to Simons and on a brilliant achievement. As he explains so thoroughly and so eloquently, the extent to which innovative thinking is both productive and profitable will largely be determined by how well managers use innovative control systems to drive strategic renewal. I also highly recommend two of Simons’ later works, Performance Measurement and Control Systems for Implementing Strategy and Levers of Organization Design.